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THINGS TO CONSIDER

So you want to own your own business - Part 3

5/16/2016

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​ Setting up shop
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At some point prior to closing, in addition to conducting due diligence on the services/vendors with which a seller has contracted, the new business owner will want to research and establish relationships with various providers.  This will depend on the industry, the local legal requirements, and the new owner's existing providers, if any. Here are a couple of the most common services a business needs:
  • Insurance Agent
    • Types of coverage vary, but may include general liability insurance, product liability insurance, professional liability insurance- known as malpractice insurance, dram shop coverage, business interruption, and of course, hazard insurance on property, whether real property or the hard assets of a business.
    • A key element of the due diligence to be performed, especially in a stock sale, is to review loss runs, any gaps in coverage, and claims denied, along with levels of coverage and whether any tail coverage is available.
    • In a business purchase, a buyer may have an agent they prefer to use, but it is usually beneficial to interview and consider continuing with the same agent used by the seller for at least an initial period.  Because there is so much to be done to transition ownership, it may be advisable to put off decisions that can be readily delayed for a time when more attention can be given them. In all situations, it's a good idea to talk with a few agents to get a sense of cost and what's available.  Also check the rating of the insurance company you are considering.
  • Payroll services provider
    • The potential for liability when payroll is mishandled is much like a row of dominoes stood on end. Once the first agency or court finds a business has failed to pay withholding taxes when due, or has failed to properly classify an independent contractor as an employee, the other state and federal agencies are right behind. There are payroll service providers, or you may find that a bookkeeper can provide this service along with handling your monthly bank statement reconciliations.
    • Interview a few providers, until you have a sense of what services are available, what they cost, and who you feel comfortable working with. In all cases, some due diligence on the provider is appropriate.
    • As with insurance agents- it is a good idea to consider continuity in the early days of ownership, especially with a stock sale, where the actual employer entity is not changing, and any errors will give rise to potential liability for the buyer.
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Flack Law, PC
50 Santa Rosa Avenue, Suite 400
Santa Rosa, CA 95404
​(707) 703-1914
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